The Government has decided to start a Special Economic Zone pilot project in Oecussi, to be called, under the new benchmark, a 'Social and Market Special Economic Zone'.

Being a member of the CPLP and part of the Economic Forum of Macau, as well as close to entering ASEAN, which is debating the subjects of 'common market' and 'market chain', the Special Economic Zone of Oecussi should be a trade and industrial centre directed to the market but also with social concerns regarding the ‘atoni’ population and consequently the whole of Timor-Leste.

With the agreement of the President of the Republic, the Government has decided to appoint Dr Mari Alkatiri as the representative of the State in this initiative of studies, reviews and contacts with the CPLP countries and – why not? – the ASEAN and Pacific countries. This strategically relevant program will then be expanded to Ataúro and other parts of the country.

Parliament quickly amended the budget to allocate one million dollars for ZEESM operational expenses in 2013.

Social Market Economy was invented by the German Christian Democratic Union in 1949. It combines market capitalism with social welfare. The state manages the private sector to some extent, but most decisions are left to the free market. (adapted from Wikipedia)

Apparently, private companies in ZEESM will be less regulated than they are in the rest of Timor-Leste.

In May and June 2014, Timor-Leste's President, Prime Minister and other top leaders broke ground for ZEESM. However, concrete information has been difficult to find, although it is essential for Timor-Leste to use its limited petroleum wealth wisely to develop the long-neglected Oecusse enclave. If this project is to benefit the 65,000 people who live there, it will take more thought than has been evident to date. Spending billions of dollars, most of which will go to foreign companies, does not automatically improve people's lives.

La'o Hamutuk has not had enough information or human resources to analyze this project in depth, and this article does not conclude whether it will benefit the people of Oecusse or Timor-Leste. Nevertheless, the project involves a lot of money, significant economic and political risks and opportunity costs. It must create its own legal, financial and governance systems. Unfortunately, most of the available information and media coverage has been to promote and socialize the project concept, rather than describe what it will actually be and do. Therefore, we are asking a few important questions, and look forward to sharing the answers.

La'o Hamutuk has not seen a clear analysis of the economic viability of this Market Zone. The project has many aspects -- infrastructure, industry, tourism, hospitals, university, airports, agriculture (and gambling?). What will be its focus? Who are its customers? What competitive advantage will it have over others seeking the same business?

The many pages of risk assessment in the Situation Analysis discuss exemption from national laws, incentives for investors, and subsidies, but leave out fundamental questions of economic feasibility. If ZEESM were a public service project -- spending public money to provide immediate benefits and services, such as water supply, health care or education -- that would be understandable, and it could be compared with other such projects to evaluate whether it would provide good value for money.

However, ZEESM has a longer-term goal of economic development. According to the Law, it will "prioritize activities of a socioeconomic nature to promote the quality of life and well-being of the community, namely:

Development of commercial agriculture;

Creation of an ethical financial center;

Creation of a free trade zone;

Increased tourism;

Creation of a center for international studies and research on climate change;

Creation of a center of green research;

Implement and develop industrial activities, for export and import;

Other economic activities that add value for the Region, as well as strengthening its international competitiveness."

To achieve a "model of development based on a new type of social market economy" which will provide a return to Oecusse people (as well as to investors) requires deeper analysis than we have seen. The list of projects in the law is varied and enticing, although not very specific or practical. It includes:

Tourism and agricultural development;

Industrial and commercial development, such as mining and quarrying, oil and gas, petrochemical, manufacturing, trade and other value-added industries;

Social development, such as public health, and hospitals, reference clinics, and medical research centers;

Development of human resources, including through a reference university teaching economics, engineering, medicine, mathematics and philosophy, including institutions of vocational or technical training and centers of excellence for research, teaching and training;

The ZEESM law creates an unprecedented degree of independence for the Oecusse Special Administrative Region (SAR). Although the SAR is created by RDTL and financed by the State, the Region is exempted from many RDTL governance and tax laws, which will allow the ZEESM Authority to create its own rules and systems. Although these should be consistent with the RDTL Constitution and general principles of national law and some require Government approval, the Government-appointed ZEESM Authority can enact policies, regulations and executive orders for the following areas:

Regulatory powers (Article 9)

Budget (Articles 10, 16, 35-36)

Planning (Articles 10 and 16)

Finances and tax system (Articles 11, 28 and 29) -- all revenues collected there stay there and the region is exempt from national taxes (28.4).

Managing state-owned property (Article 12(c))

Transparency and reporting, if any (not mentioned in the ZEESM law)

Land use and expropriation (Articles 26-27), in accordance with national laws

Making investments, including overseas (Article 28.2)

Procurement (Article 30)

Unrestricted financial market and trade (Articles 31 and 33)

Customs duties (Articles 32 and 38.3) and ship registration (Article 34). Goods for economic and social development are exempt from customs duties.

No prior contract and legislation reviews by the Chamber of Auditors (Article 41)

The Region shares responsibility with the RDTL Government for:

Personnel, civil service regime, pay scales (Articles 12(g) and 39)

Diplomacy and foreign relations (Articles 12(e and f) and 13)

The State of Timor-Leste, with support from development partners, has worked hard to develop systems for governance, financial management, revenue collection, transparency and planning during the last 12 years. Although some are not yet perfect or fully functional, they work. Discarding these for Oecusse means that the unelected ZEESM Authority must invent its own systems. It may also violate the Constitution and national laws, as well as creating complex administrative problems. For example, if different customs rules apply in Oecusse and Dili, will goods being transported between the two districts have to go through customs clearance?

Meetings have been held all over the world about this project, especially with high-level politicians (such as former U.K. Prime Minister Tony Blair) and potential investors. There have also been many meetings in Oecusse. However Parliament enacted the ZEESM law hastily, without any public hearings, which is not a good sign for how it will be implemented.

The photo at right is on many ZEESM billboards in Oecusse. Perhaps it shows the real purpose of this project -- bringing opposition leader and former Prime Minister Mari Alkatiri under the tent of current Prime Minister Xanana Gusmão. (Others in the photo, left-to-right, are Vice President of Parliament Adérito Hugo da Costa, Minister of Transport and Communications Pedro Lay, and Minister of Public Works Gastão de Sousa.) La'o Hamutuk thinks that an effective political opposition is essential for democratic decision-making, and we are disappointed that FRETILIN has been less active since the ZEESM project has been on the table. For example, Parliament passed the 2013 and 2014 State Budgets, the media law and the ZEESM law itself with no dissenting votes and little substantive plenary debate. We have been told that the President of the Republic promulgated the ZEESM law quickly because he is relieved that men who have been adversaries are working together, in spite of his concerns about the content of the law and the project itself.

ZEESM "consultations" focus on goals, dreams and the plethora of promising possibilities, rather than costs and benefits from the actual project, its commercial viability, who will be displaced, realistic local employment estimates, and other impacts on the community. (People living near the Suai airport construction site have seen virtually all the jobs, including unskilled ones like cleaners, going to Indonesians.) It is also unclear how people living in the upland interior, far from the coast where the project will be centered, will be affected by their new unelected Regional government, as well as how the SAR will interact with nationwide decentralization processes.

Like many activities in Timor-Leste, consultation and socialization of ZEESM has included many more men than women (women have been excluded from some Suco Council meetings), and we fear that the project will not respond to women's needs and priorities. The Advisory Council defined in Articles 23-24 of the ZEESM law is likely to be male-dominated, since Lia Nian, Chefe Suco, and most higher-level security officials are male. These photos, a sampling of socialization meetings held in Oecusse in June 2014, given an indication of gender balance. Click on any of them to see them larger.

"As citizens of Timor-Leste, especially as citizens of the Oecusse region, we are proud of the effort the Government and Parliament have made to advance Oecusse's future. In addition, we are a little sad because we, as children of Oecusse, knew nothing about the whole process to establish this law. We ask the President to delay promulgating this law which Parliament already approved, because:

The entire Oecusse community doesn't yet know the contents of the law.

We ask Parliament and Government to consult with the Oecusse community before the President promulgates this law.

The people of Oecusse should feel ownership of this law. Therefore, the people of Oecusse need to be involved in the process of creating it."

La'o Hamutuk met with the ZEESM team eight months ago, and we have repeatedly asked them for additional information about the project. We shared a draft of this web page with them almost two weeks before we published it, asking for corrections and additional information, but they have not responded. However, on 1 July, local newspapers reported on a recent meeting between President Taur Matan Ruak and ZEESM head Mari Alkatiri, as described in the articles at left ("Need to disseminate ZEESM to the public") and right ("Alkatiri: Intellectuals who don't know the program shouldn't talk"). We hope that the President's view, on the left, prevails. Click on either to see them larger.

Oecusse district, separated from the rest of Timor-Leste, has often been ignored, and poverty and health statistics show the results. Lately, however, it has been getting attention, even before the Special Zone is really underway.

The 2013 General State Budget was the first to appropriate money for Oecusse regional development from the Infrastructure Fund, and $3.8 million of the $10.6 million appropriated for that year was spent. The 2013 State Budget also appropriated one million dollars for "operational expenses" for ZEESM, of which $925,213 was spent. The largest amounts went for consultants ($294,000), renting an office in Timor Plaza ($223,000), travel ($78,000) vehicle purchases ($67,000).

These projects include the Tono irrigation system, a reference school, power station, roads and market. Additional money is allocated for other infrastructure in Oecusse, including public buildings, a border post and water supply.

However, the largest financial allocation for Oecusse in the 2014 RDTL budget is $20.5 million as a public transfer to the SAR Authority, which was added by the closed-door Komisaun Eventual a few days before Parliament approved the budget. This amount, most of the $22.9 million for ZEESM within the $27.2 million budget of the Minister of State for the Presidency of the Council of Ministers, is projected to increase every year. Public transfers are not under procurement, tender or reporting rules, and the ZEESM authority will decide how to spend it. According to the Transparency Portal accessed on 30 June, $184,700 had been spent on ZEESM between January and June 2014, all for Goods and Services in the "National Region," including $79,100 for operational expenses (including office security), $31,500 in cash advances, $24,200 on overseas travel and $22,100 on professional services (website and consultants) and $18,500 on utilities.

The spending described in the previous paragraph is to plan and promote ZEESM, not actually to implement or build parts of it. According to the Situation Analysis, "This designated zone would require an estimated $4.11 billion ($4,110,000,000) of investment over a 20 year period, of which 67% or approximately $2.75 billion will be private sector investment and the remaining 33% or $1.36 billion will be contributed by the public sector." We hope that these precise numbers come from a detailed cost analysis, and that there will be clarity about who will pay for the losses if the investments are not as profitable as predicted.

On 7 July, the Finnish company Wartsila, supplier of the Hera and Betano diesel generating stations, presented a proposal for an LNG terminal and gas-fueled power plant for Oecusse to ZEESM and the Secretary of State for Electricity. ZEESM leaders were optimistic that they could decide among the three competing companies in one or two weeks.

On 8 July, the Council of Ministers enacted a Decree-Law "to create a special procurement framework which allows to expedite the process of procurement of infrastructure essential to the region."

On 10 July, at a well-attended presentation at JL Villas in Fatuhada, Dili, ZEESM and UNDP leaders announced a three-year, $275,000 agreement to support ZEEMS's institutional framework. In addition to showing the beginning of the ZEESM film, ZEESM's Arsenio Bano and UNDP's Noura Hamladji gave a presentation (also PDF), followed by speeches by Jose Ramos-Horta, Mari Alkatiri, and UNDP Asia Pacific Regional Director Haoliang Xu. The agreement itself could not be signed because President Taur Matan Ruak has not yet formally appointed Mari Alkatiri as President of the ZEESM Authority.